House of Representatives rejected $700B Tarp bailout
Market reaction was immediate and severe
Dow Jones fell 777 points, heaviest midday volume in history
Market losses exceeded proposed $700B bailout amount
Public opposition strongly influenced Congressional vote
Party leaders failed to secure expected majority
Vote occurred minutes before financial press deadlines
Opinion
The market's violent reaction to the failed vote reveals dangerous assumptions about government intervention. The disconnect between public opposition and market expectations shows a concerning rift between Wall Street and Main Street perspectives. Most troubling is how markets had priced in an assured passage of the bailout, demonstrating dangerous complacency about political risk and creating conditions for a dramatic selloff when those assumptions proved wrong.
Core Sell Point
The market's extreme reaction to the failed TARP vote exposes dangerous overreliance on anticipated government intervention, suggesting potential for similar market shocks when political outcomes diverge from financial sector expectations.
Democracy asserted itself and markets howled. In a disaster for Tarp’s political managers, the House of Representatives voted down the $700bn bailout. On both sides of the aisle congressmen proved far more reluctant to back the rescue than their leaders had expected. The bailout was hugely unpopular, and angry constituents had deluged their representatives with calls to block it, but on the markets (and in our newsroom) the assumption was that party leaders would not let the issue come to a vote unless they had an assured majority. The vote took place in the late morning, with the tallies of “Yeas” and “Nays” adding up in the corner of TV screens in trading rooms. Shortly after noon, the vote came to an end, and the Nays had won. The next minute saw the heaviest midday volume in history — and also created frantic scenes in the FT newsroom as the event happened only minutes before the deadline for the first edition of the newspaper. By day’s end, the Dow Jones Industrial Average had fallen by a record (and very memorable) 777 points. The total fall in US market cap came to far more than the $700bn the administration had wanted to spend on rescuing banks.
